South Korea’s won declined the most in a month amid concern China’s interest-rate cut will lead to more weakness in the yuan and other regional exchange rates.
The People’s Bank of China lowered its policy rate for a sixth time since November late on Friday. That followed data last week that showed gross domestic product in China, South Korea’s biggest export market, increased at the slowest pace in more than six years in the third quarter. The devaluation of the yuan on Aug. 11 sparked declines in Asian exchange rates and raised fears of a currency war.
“The PBOC rate cut triggered concern about the Chinese economy and potentially you can see more Chinese currency weakness," said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore. Ltd. “The Korean won was dragged along."
The won fell 0.8 percent, most since Sept. 23, to 1,133.90 a dollar at the close in Seoul, according to data compiled by Bloomberg. That pared its gain this month to 4.5 percent, the best performance in Asia after Indonesia’s rupiah.
Asian policy makers will have to favor weaker currencies to support their economies, said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. The Bank of Korea lowered its 2015 growth forecast to 2.7 percent from 2.8 percent on Oct. 15. The won will weaken to 1,225 a dollar by year-end as the Federal Reserve is likely to raise borrowing costs in December, Murata said.
Ten-year government bonds gained, pushing the yield down one basis point to 2.1 percent in Seoul, Korea Exchange prices show. The three-year yield fell one basis point to 1.65 percent.